Why RIL-Samsung 4G Deal Failed

Reliance Industries' (RIL's) negotiation with South Korean conglomerate Samsung for developing handsets which can provide voice on 4G technology have hit a hurdle, with the handset maker unwilling to match the price demanded by RIL.

NEW DELHI: Reliance Industries' (RIL's) negotiation with South Korean conglomerate Samsung for developing handsets which can provide voice on 4G technology have hit a hurdle, with the handset maker unwilling to match the price demanded by RIL.

Sources involved in the negotiations said Reliance Jio Infocomm, an RIL subsidiary, wants the handset for Rs 5,000 a piece. But the Korean giant is unwilling to go below Rs 8,500 per handset, and that too only if RIL agrees to buy over 3 million handsets. Without that commitment, Samsung has quoted a price of Rs 11,000 per handset.

Samsung declined to comment. A questionnaire emailed to RIL went unanswered. RIL is the only company in the country to have all-India airwaves to provide high-speed broadband, and recently also received approval to provide voice services on it.

The Mukesh Ambani-owned company bought 20 Mhz spectrum spectrum in the 2.3 Ghz band in a government-led auction, May 2010, for roughly Rs 13,000 crore. The company plans to launch a TDD-LTE technology, commonly referred to as 4G, or fourth generation.

However, the world over the technology is used in the 700MHz band. As a result the ecosystem for devices and equipment on this frequency is limited. The only other country to use a similar band is China, which mostly uses instruments from local manufacturers like Huawei.

The lack of an ecosystem has so far delayed launch of services of RIL that was expected in 2011. The launch of 4G services by competitor Bharti AirtelBSE -2.56 % in four cities has not taken off so far due to a lack of maturity in devices and users alike, say industry experts.

At RIL's 39th annual general meeting last month, chairman Mukesh Ambani hinted that the launch of its 4G services was about a year away. "We have charted an ambitious plan for the next 12 months and we foresee making rapid progress over this period towards launching our services across India," he had said.

The company has ramped up its hiring for the telecom venture as its employee strength jumped to over 3,000 from just 700 a year ago and it plans to hire up to 10,000 by next year, Ambani had announced. Ambani had spoken about signing vendor and supplier contracts with a conspicuous silence on handsets.

Back of the envelope calculations reveal that the size of order desired by Samsung will cost RIL at least Rs 1,500 crore at Rs 5,000 and the bill for 3 million handsets would burgeon to Rs 2,550 crore if it were to agree to Samsung's price. RIL is also believed to have initiated talks with Chinese equipment manufacturer Huawei.